Franchisors must comply with both New York law and federal law when it comes to franchise sales and operations. New York franchise laws govern details of initial registration, disclosure, dispute resolution, and many other facets of franchise business practices.
The New York Attorney General’s office manages franchise registration and compliance with franchise laws. The office recommends consulting an experienced franchise attorney if concerns or disputes arise in the franchise process.
According to the purpose outlined in N.Y. Gen. Bus. Law §680, lawmakers established the New York Franchise Sales Act to avoid losses suffered by franchisees when they did not receive “full and complete information” regarding:
To provide prospective franchisees with the information necessary to “avoid detriment to the public interest” and “benefit the commerce and industry” of New York, the statutory provisions require franchisors to supply all relevant details regarding the sale of the franchise. The registration process is the primary means of ensuring franchisees have access to adequate information before investing in a franchise.
Before a franchisor may offer a franchise for sale in New York, the franchisor must register an “offering prospectus” containing certain specified information. The statute allows the use of uniform franchise disclosure documents if they have been approved by the federal government or another state and they comply with the New York requirements.
Included in the disclosure requirements is information about the franchise fee and the formula for determining the fee if the rate charged is not uniform among franchisees. Franchisors must provide a recent financial statement that conforms to current regulations established by the agency. In addition, franchisors must supply information about their business experience, certain criminal background information of the principals, and the terms of any financing arrangements offered by the franchisor.
The franchise disclosure document is just one of many pieces of information a franchisor must submit in order to register a franchise in New York. Other documents include the Uniform Franchise Registration Application and Certification, the Costs and Source of Funds form, the Consent to Service of Process form, the Sales Agent Disclosure form, and, in some cases, the Guarantee of Performance form.
Also, franchisors must pay the filing fee of $750. The franchise application package should be sent to the New York State Department of Law, Investor Protection Bureau, 28 Liberty Street, New York, NY 10005.
To renew a franchise registration, the franchisor will pay a fee of $150. If this renewal process is not completed according to the state’s guidelines and within 120 days after the end of the fiscal year and initial registration, there may be penalties. If they are unable to renew on time, they may need to re-register their franchise from scratch and pay the initial filing fee of $750.
The definition of a franchise under New York law is broader than many people realize. Businesses might unintentionally establish a franchisor relationship with other companies then subjecting them to New York franchise laws and registration requirements.
A knowledgeable franchise attorney could review contractual relationships to determine whether a franchise has been created and whether a potential franchisor may be exempt from registration requirements. An experienced franchise legal team could help you with renewals, amendments, and other franchise laws. The New York Franchise Sales Act makes franchisors liable to franchisees if they sell their business property in violation of the requirements, so getting everything legally correct from the beginning could smooth the process and maximize your potential profits. Contact a dedicated franchise legal team today to get started on your business expansion.